Exercise 3-6 (20 minutes)

1. Cost of Goods Manufactured

Direct materials:
Raw materials inventory, beginning............... $24,000
Add: Purchases of raw materials....................  53,000
Total raw materials available......................... 77,000
Deduct: Raw materials inventory, ending.......   6,000
Raw materials used in production.................. 71,000
Deduct: Indirect materials included in
manufacturing overhead.............................   8,000 $ 63,000
Direct labor...................................................... 62,000
Manufacturing overhead applied to work in
process inventory............................................    41,000
Total manufacturing costs................................. 166,000
Add: Beginning work in process inventory..........    41,000
207,000
Deduct: Ending work in process inventory..........    38,000
Cost of goods manufactured.............................. $169,000

2. Cost of Goods Sold

Finished goods inventory, beginning.................. $ 86,000
Add: Cost of goods manufactured......................  169,000
Cost of goods available for sale......................... 255,000
Deduct: Finished goods inventory, ending..........    93,000
Unadjusted cost of goods sold........................... 162,000
Add: Underapplied overhead.............................      8,000
Adjusted cost of goods sold............................... $170,00
0
Exercise 3-7 (10 minutes)
1. Actual direct labor-hours.......................... 8,250
× Predetermined overhead rate...............    $21.40
= Manufacturing overhead applied........... $176,550
Less: Manufacturing overhead incurred.....  172,500
Manufacturing overhead overapplied........ $   4,050

2. Because manufacturing overhead is overapplied, the cost of goods

sold would decrease by $4,050 and the gross margin would
increase by $4,050.

Exercise 3-10 (10 minutes)

Direct material............................ $12,000
Direct labor................................. 8,000
Manufacturing overhead applied:
$8,000 × 120%........................    9,600
Total manufacturing cost............. $29,600
Unit product cost:
$29,600 ÷ 200 units................. $148

Exercise 3-11 (30 minutes)

1. a. Raw Materials Inventory.......................... 210,000
Accounts Payable................................. 210,000
b. Work in Process...................................... 152,000
Manufacturing Overhead......................... 38,000
Raw Materials Inventory....................... 190,000
c. Work in Process...................................... 49,000
Manufacturing Overhead......................... 21,000
Salaries and Wages Payable.................. 70,000
d. Manufacturing Overhead......................... 105,000
Accumulated Depreciation..................... 105,000
e. Manufacturing Overhead......................... 130,000
Accounts Payable................................. 130,000
 f. Work in Process...................................... 300,000
Manufacturing Overhead....................... 300,000
75,000 machine-hours  $4 per machine-hour = $300,000.
g. Finished Goods....................................... 510,000
Work in Process................................... 510,000
h. Cost of Goods Sold.................................. 450,000
Finished Goods..................................... 450,000
Accounts Receivable................................ 675,000
Sales................................................... 675,000
$450,000 × 1.5 = $675,000.

2. Manufacturing Overhead Work in Process

(b) 38,000 (f) 300,000 Bal. 35,000 (g) 510,000
(c) 21,000 (b) 152,000
(d) 105,000 (c) 49,000
(e) 130,000 (f) 300,000
6,000 Bal. 26,000
(Overapplied
overhead)

Exercise 3-12 (20 minutes)

1. The estimated total manufacturing overhead cost is computed as

follows:
Y = $750,000 + $4.00 per MH × 150,000 MHs
Estimated fixed manufacturing overhead................. $  750,000
Estimated variable manufacturing overhead
$4.00 per MH × 150,000 MHs..............................     600,000
Estimated total manufacturing overhead cost.......... $1,350,000

The predetermined overhead rate is computed as follows:

Estimated total manufacturing overhead........ $1,350,000
÷ Estimated total machine-hours (MHs)......... 150,000 MHs
= Predetermined overhead rate.................... $9.00 per MH

2. Total manufacturing cost assigned to Job 500:

Direct materials................................ $350
 Direct labor...................................... 230
Manufacturing overhead applied
$9.00 per MH × 30 MHs.................  270
Total manufacturing cost.................. $850

3. Computing underapplied/overapplied overhead:

Actual manufacturing overhead (a)........ $1,325,000
Actual machine-hours........................... 147,000
× Predetermined overhead rate............        $9.00
= Manufacturing overhead applied (b)... $1,323,000
Underapplied overhead (a) – (b)........... $      2,000
Manufacturing overhead underapplied... $2,000
The closing entry would increase cost of goods sold by $2,000 and
decrease net operating income by $2,000.

Exercise 3-17 (30 minutes)

1. The predetermined overhead rate is computed as follows:
Y = $106,250 + $0.75 per MH × 85,000 MHs
Estimated fixed manufacturing overhead................... $106,250
Estimated variable manufacturing overhead
$0.75 per MH × 85,000 MHs..................................    63,750
Estimated total manufacturing overhead cost............ $170,000

The predetermined overhead rate is computed as follows:

Estimated total manufacturing overhead........ $170,000
÷ Estimated total machine-hours.................. 85,000 MHs
= Predetermined overhead rate.................... $2.00 per MH

2. The amount of overhead cost applied to Work in Process for the

year would be: 80,000 machine-hours × $2.00 per machine-hour
= $160,000. This amount is shown in entry (a) below:
Manufacturing Overhead
(Utilities) 14,000 (a) 160,000
(Insurance) 9,000
(Maintenance) 33,000
(Indirect materials) 7,000
 (Indirect labor) 65,000
(Depreciation) 40,000
Balance 8,000

Work in Process
(Direct materials) 530,000
(Direct labor) 85,000
(Overhead) (a) 160,000

3. Overhead is underapplied by $8,000 for the year, as shown in the

Manufacturing Overhead account above. The entry to close out
this balance to Cost of Goods Sold would be:
Cost of Goods Sold...................................... 8,000
Manufacturing Overhead........................... 8,000

4. When overhead is applied using a predetermined rate based on

machine-hours, it is assumed that overhead cost is proportional to
machine-hours. When the actual level of activity turns out to be
80,000 machine-hours, the costing system assumes that the
overhead will be 80,000 machine-hours × $2.00 per machine-
hour, or $160,000. This is a drop of $10,000 from the initial
estimated total manufacturing overhead cost of $170,000.
However, the actual total manufacturing overhead did not drop by
this much. The actual total manufacturing overhead was $168,000
—a drop of only $2,000 from the estimate. The manufacturing
overhead did not decline by the full $10,000 because of the
existence of fixed costs and/or because overhead spending was
not under control. These issues will be covered in more detail in
later chapters.

Exercise 3-20 (30 minutes)

1. Since $320,000 of studio overhead cost was applied to Work in
Process on the basis of $200,000 of direct staff costs, the
 apparent predetermined overhead rate was 160%:

2. The Krimmer Corporation Headquarters project is the only job

remaining in Work in Process at the end of the month; therefore,
the entire $40,000 balance in the Work in Process account at that
point must apply to it. Recognizing that the predetermined
overhead rate is 160% of direct staff costs, the following
computation can be made:
Total cost added to the Krimmer
Corporation Headquarters project...... $40,000
Less: Direct staff costs.................................
$13,500
Studio overhead cost
($13,500 × 160%)...........................
 21,600  35,100
Costs of subcontracted work................ $ 4,900

With this information, we can now complete the job cost sheet for
the Krimmer Corporation Headquarters project:
Costs of subcontracted work............ $ 4,900
Direct staff costs............................. 13,500
Studio overhead.............................  21,600

Total cost to January 31.................. $40,000

Problem 3-23 (45 minutes)

1. The cost of raw materials put into production was:
Raw materials inventory, 1/1....................... $ 30,000
 Debits (purchases of materials)....................  420,000
Materials available for use............................ 450,000
Raw materials inventory, 12/31....................    60,000
Materials requisitioned for production........... $390,000

2. Of the $390,000 in materials requisitioned for production,

$320,000 was debited to Work in Process as direct materials.
Therefore, the difference of $70,000 ($390,000 – $320,000 =
$70,000) would have been debited to Manufacturing Overhead as
indirect materials.

3. Total factory wages accrued during the year

(credits to the Factory Wages Payable account). . $175,000
Less direct labor cost (from Work in Process)........  110,000
Indirect labor cost................................................ $ 65,000

4. The cost of goods manufactured for the year was $810,000—the

credits to Work in Process.

5. The Cost of Goods Sold for the year was:

Finished goods inventory, 1/1........................................... $ 40,000
Add: Cost of goods manufactured (from Work in Process)..  810,000
Cost of goods available for sale........................................ 850,000
Deduct: Finished goods inventory, 12/31..........................  130,000
Cost of goods sold........................................................... $720,000

6. The predetermined overhead rate was:

7. Manufacturing overhead was overapplied by $15,000, computed
as follows:
Actual manufacturing overhead cost for the year
(debits)....................................................................... $385,000
Applied manufacturing overhead cost (from Work in
Process—this would be the credits to the
Manufacturing Overhead account).................................  400,000
Overapplied overhead..................................................... $(15,000)

8. The ending balance in Work in Process is $90,000. Direct labor

makes up $18,000 of this balance, and manufacturing overhead
makes up $40,000. The computations are:
Balance, Work in Process, 12/31.................................. $90,000
Less: Direct materials cost (given)............................... (32,000)
Manufacturing overhead cost
($32,000 × 125%).......................................... (40,000)
Direct labor cost (remainder)....................................... $18,000
Problem 3-25 (120 minutes)
1. a. Raw Materials...................................... 142,000
Accounts Payable............................ 142,000
b. Work in Process................................... 150,000
Raw Materials................................. 150,000
c. Manufacturing Overhead....................... 21,000
Accounts Payable............................ 21,000
d. Work in Process................................... 216,000
Manufacturing Overhead....................... 90,000
Salaries Expense.................................. 145,000
Salaries and Wages Payable............. 451,000
e. Manufacturing Overhead....................... 15,000
Accounts Payable............................ 15,000
f. Advertising Expense............................. 130,000
Accounts Payable............................ 130,000
g. Manufacturing Overhead....................... 45,000
Depreciation Expense........................... 5,000
Accumulated Depreciation............... 50,000
h. Manufacturing Overhead....................... 72,000
Rent Expense....................................... 18,000
Accounts Payable............................ 90,000
i. Miscellaneous Expense......................... 17,000
Accounts Payable............................ 17,000

j. Work in Process................................... 240,000

Manufacturing Overhead................. 240,000
 $150,000 direct materials cost × 160% = $240,000 applied.

Problem 3-25 (continued)

k. Finished Goods.................................... 590,000
Work in Process.............................. 590,000
l. Accounts Receivable............................. 1,000,000
Sales.............................................. 1,000,000
Cost of Goods Sold............................... 600,000
Finished Goods............................... 600,000

2.
Accounts Receivable Raw Materials
(l) 1,000,000 Bal. 18,000 (b) 150,000
(a) 142,000
Bal. 10,000

Work in Process Finished Goods

Bal. 24,000 (k) 590,000 Bal. 35,000 (l) 600,000
(b) 150,000 (k) 590,000
(d) 216,000
(j) 240,000
Bal. 40,000 Bal. 25,000

Manufacturing Overhead Accounts Payable

(c) 21,000 (j) 240,000 (a) 142,000
(d) 90,000 (c) 21,000
(e) 15,000 (e) 15,000
(g) 45,000 (f) 130,000
(h) 72,000 (h) 90,000
Bal. 3,000 (i) 17,000

Accumulated Depreciation Depreciation Expense

 (g) 50,000 (g) 5,000

Salaries & Wages Payable Salaries Expense

(d) 451,000 (d) 145,000

Miscellaneous Expense Advertising Expense

(i) 17,000 (f) 130,000

Rent Expense Cost of Goods Sold

(h) 18,000 (l) 600,000

Sales
(l) 1,000,000

3.
Southworth Company
Schedule of Cost of Goods Manufactured
Direct materials:
Raw materials inventory, beginning.................... $ 18,000
Add: Purchases of raw materials........................  142,000
Materials available for use.................................. 160,000
Deduct: Raw materials inventory, ending............   10,000
Materials used in production.............................. $150,000
Direct labor......................................................... 216,000
Manufacturing overhead applied to work in
process.............................................................  240,000
Total manufacturing cost...................................... 606,000
Add: Work in process, beginning..........................    24,000
630,000
Deduct: Work in process, ending..........................    40,000
Cost of goods manufactured................................. $590,000

4.
Cost of Goods Sold.......................................... 3,000
Manufacturing Overhead............................. 3,000
 Schedule of cost of goods sold:
Finished goods inventory, beginning.............. $ 35,000
Add: Cost of goods manufactured..................  590,000
Cost of goods available for sale..................... 625,000
Deduct: Finished goods inventory, ending......    25,000
Unadjusted cost of goods sold....................... 600,000
Add: Underapplied overhead.........................      3,000
Adjusted cost of goods sold........................... $603,000

5.
Southworth Company
Income Statement
Sales........................................................... $1,000,000
Cost of goods sold.......................................     603,000
Gross margin............................................... 397,000
Selling and administrative expenses:
Salaries expense....................................... $145,000
Advertising expense.................................. 130,000
Depreciation expense................................ 5,000
Rent expense............................................ 18,000
Miscellaneous expense...............................    17,000     315,000
Net operating income................................... $    82,000

6.
Direct materials............................................................. $ 3,600
Direct labor (400 hours × $11 per hour)......................... 4,400
Manufacturing overhead cost applied (160% × $3,600)...    5,760
Total manufacturing cost............................................... 13,760
Add markup (75% × $13,760).......................................  10,320
Total billed price of Job 218........................................... $24,080

$24,080 ÷ 500 units = $48.16 per unit.